Home Life insurance Life insurance basics How to maximize the cash value of a life insurance policy How to maximize the cash value of a life insurance policy Written by: Lynnette Khalfani-Cox | Reviewed by: Michelle Megna Michelle Megna Michelle, the former editorial director, insurance, at QuinStreet, is a writer, editor and expert on car insurance and personal finance. Prior to joining QuinStreet, she reported and edited articles on technology, lifestyle, education and government for magazines, websites and major newspapers, including the New York Daily News. | Posted on December 27, 2011 Why you should trust Insure.com Quality Verified At Insure.com, we are committed to providing honest and reliable information so that you can make the best financial decisions for you and your family. All of our content is written and reviewed by industry professionals and insurance experts. We maintain strict editorial independence from insurance companies to maintain editorial integrity, so our recommendations are unbiased and are based on a comprehensive list of criteria. When you buy life insurance, the primary purpose is to provide cash for your loved ones in the event of your death.But many policyholders unwittingly shortchange their beneficiaries by leaving large, unused amounts of cash value in their permanent life insurance policies, according to Jean Dorrell, president of Senior Financial Security Inc., a retirement- and estate-planning firm. According to Dorrell, you want to try to die with “as little cash value as possible” in a permanent life insurance policy. “Otherwise, it [the cash value] just goes to the insurance company, and your beneficiaries simply get the death benefit.” There is a strategy, however, to leave more money to your beneficiaries when you have a policy that has accumulated a sizeable cash value over time. The solution is to contact your life insurance company and ask for a higher death benefit in exchange for the cash value of your policy. Trading in cash value for face valueThis tactic allows those who own permanent life insurance policies of all kinds — including whole life, universal life and variable life – to “trade in” the cash value of their policies for a higher death benefit for their loved ones. For more information on permanent life insurance products, see Insure.com’s The basics of permanent life insurance.The goal is to reduce the cash value to as close to zero as possible, and increase the face amount– the death benefit — by an equal amount.Here’s an example of how it works.Dorrell had a 74-year-old female client whose universal life insurance policy had a face amount of $150,000, and $120,000 in cash value. So, Dorrell had the client to call up her insurance company and ask for more death benefit in exchange for her cash value.The company obliged the request and Dorrell’s client nearly doubled the death benefit she’s leaving behind to her beneficiaries. Now, instead of getting a $150,000 cash payout upon her death, the woman’s heirs will receive $270,000.Why are companies willing to do this? So they won’t lose your business, says Dorrell.She says that in about 40 percent of the cases where she sits down with new elderly clients, the person has a policy with a cash value and a death benefit that are virtually equal. Not understanding the options with the cash value of your policy is a big mistake because it leaves you paying premiums unnecessarily or dying with a big, unused cash value that never benefits your relatives, Dorrell says.“When people die with large amounts of cash value, the insurance companies just salivate over that,” Dorrell says. She adds that when you die with a big cash value that hasn’t been liquidated, leveraged or converted to a death benefit, “the insurance company is making out better than your heirs.”Paying life insurance premiums with cash valueIf you don’t want or need to increase the death benefit to heirs, you can also benefit by using your cash value in another way. Dorrell recommends telling your life insurance company to take premiums out of your policy’s cash value. This way, you don’t have to pay insurance premiums anymore. For many people, this could save $2,000 a year or so in premiums, Dorrell says.According to Dorrell, there is no standard rule on how much cash value you should have in a policy before making such a request.“I would say depending on your premiums, make sure your cash value is about four to five times what your premiums would cost annually,” Dorrell says. She says that is because if your cash value is too low, you might have to add monies to make up the cost of insurance.Dorrell cites MetLife, New York Life, Northwestern Mutual and Prudential as companies that typically honor requests to increase your death benefit with your cash value. But she says many other life insurance companies will do the same. “You just have to ask for it,” she says. × Get Free Life Insurance Quotes Today! Zip Code Please enter valid zip Age Age 16 – 20 21 – 24 25 – 34 35 – 44 45 – 54 55 – 64 65+ Coverage Amount Coverage Amount $50,000 – $100,000 $100,000 – $200,000 $200,000 – $300,000 $400,000 – $500,000 $500,000 – $1,000,000 $1,000,000 – $2,000,000 $2,000,000 – $5,000,000 $5,000,000+ Coverage Type Coverage Type Whole Life Term Life Final Expense Not Sure Gender Gender Male Female Non-Binary Tobacco Use Yes No Compare Quotes QuickTake Understanding your life insurance policy options How to read your life insurance policy How to find out if someone has life insurance What is a life insurance beneficiary? Life insurance riders: What they are and how they work How to make sure you have enough life insurance How life insurance works for high-net-worth individuals Family caregivers guide to insurance: What you need to know 8 ways to find life insurance when you're uninsurable 10 ways to save money on life insurance Combination life insurance or long-term care: Make the right pick Covid-19 and life insurance: What you need to know? How to use your insurance to help your adult children The basics of return of premium term life insurance When to reassess your life insurance needs Life insurance for new parents Life insurance for people with pre-existing conditions Guide to life insurance for children 5 questions to ask before you buy term life insurance The most expensive medical conditions for life insurance buyers Can I change my insurance plan if I get pregnant? | Insure.com Life insurance trusts for child beneficiaries What is cash value life insurance and how does it work? Using life insurance to fund retirement Accidental death and dismemberment insurance The most common mistakes people make when choosing their life insurance beneficiaries What to do if you get declined for life insurance The life insurance contestability period: What you need to know The advantages of survivorship life insurance policies Life insurance for people with risky occupations Who's who on a life insurance policy What is guaranteed issue life insurance? What is an accelerated death benefit rider and how does it work? What is a contingent life insurance beneficiary? Comprehensive guide to life insurance basics: Understanding coverage and how it works. Life insurance for women Can you avoid estate taxes with a life insurance trust? What are per capita and per stirpes life insurance beneficiaries? Why it’s important for mothers, especially single mothers, to have life insurance Do I need a life insurance trust? What is an irrevocable life insurance beneficiary? What happens to the cash value of my whole life insurance policy when I die? How to buy life insurance Life insurance for parents Guide to life insurance for transgender applicants How does the life insurance underwriting process work? How much life insurance do you need? Combination life insurance merges long-term care with your policy What is simplified issue term life insurance? Is life insurance taxable? How to convert a term life policy to permanent life insurance Sheltering life insurance from estate taxes Life insurance tax surprise: The unholy trinity How life insurance rates are determined How to do a needs analysis before you buy life insurance 8 simple ways to pay for your life insurance Is your family scamming you out of life insurance money? The 5 most terrifying life insurance words Life insurance on a shoestring budget Life insurance coverage: 6 Things You Didn't Know It Covers Sports that could knock you out of contention for life insurance Insurance and marriage Life insurance living benefits provide cash for the terminally ill Variable life and variable annuity sub-accounts: The more the merrier? See more > Related Articles What happens if you outlive your term life insurance? By Shivani Gite What is indexed universal life insurance? By Shivani Gite Savings+ By Wysh 2023 Review: A High-Yield Savings + Life Insurance Combo By Insure.com What is final expense insurance and how does it work? By Desiree Ghazi Types of life insurance By Huma Naeem The different types of term life insurance policies explained By Nupur Gambhir Get instant quotes now ! Please enter valid zip Get Quotes